Economy Grows by 3.2% and on the way to Slow and Steady Recovery

The US GDP has posted a 3.2% growth in the first quarter of the year, fuelled by increased consumer spending and business investments. Statistics also show that home purchases went up by 3.6% in the first three months of 2010.

Consumer spending will continue to play a big part in the recovery process. An increasing number of Americans are becoming confident that the economy will improve in the coming months and have started spending more. Another contributor to increased GDP is the higher investments made by business organizations in the first quarter of the year. Businesses boosted spending on new equipment by 13%, which shows that the industry too is in an optimistic mood.

The stock market also posted decent gains in the quarter, on the back of its stellar rise last year. The S&P 500 Index rose by 4.9% from January through March. Another encouraging sign was that the private sector is picking up speed. Caterpillar, a leading manufacturer of construction and mining equipment posted its first profit in seven quarters.

The housing market however is still reeling under a huge number of foreclosures and it will be a while before this problem is sorted out. But the good news is that new home prices have seen an increase in some cities and many first-time buyers are entering the housing market. Homebuilders’ stocks have gone up by several points in the past few weeks, in spite of the worrying state of the market, which shows that the investors are becoming confident that the sector could see a turnaround soon.

The results as far as employment is concerned are mixed. While long-term unemployment is still high at 9.7%, recently there has been a fall in the number of people claiming unemployment benefits. The administration has said that hiring will see an uptick in the coming months on the news that the economy is improving.

As the government spending measures slowly start to abate, it will be a stern test for the economy in the next few months. As of April 30, home buyers’ tax credits offered by the government to boost home sales, have expired. However, the Federal Reserve has decided to keep interest rates at record lows to encourage buying by reducing borrowing costs. The Fed, it appears, is still cautious despite encouraging news about the economy.